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The revenue generated from clinical chemistry and hematology laboratory services as determined using activity-based
Kasaw Adane1, Zenegnaw Abiy2, Kassu Desta3
1Unit of Quality Assurance and Laboratory Management, School Biomedical and Laboratory Sciences, College of Medicine and Health Sciences, University of Gondar, PO Box 196, Gondar, Ethiopia.
Insights
Laboratory services in Ethiopia are significantly underpriced, with 90% of tests costing more than their charged price. This impacts revenue collection and hospital capacity, necessitating a price revision for sustainable service delivery.
Area of Science:
- Health economics
- Clinical laboratory science
- Healthcare management
Background:
- Rising healthcare costs strain laboratory service financing, particularly in low-income countries.
- Out-of-pocket spending is high, and laboratory services often receive low financial priority.
- Accurate revenue estimation is crucial for capacity building and enhancing laboratory service quality.
Purpose of the Study:
- To determine the revenue generated from clinical chemistry and hematology services.
- To calculate the true cost of laboratory tests using the Activity-Based Costing (ABC) model.
- To assess the profitability and return on investment (ROI) of laboratory services.
Main Methods:
- A panel study design was employed at Tikur Anbessa Specialized Teaching Hospital.
- The Activity-Based Costing (ABC) model was utilized to ascertain test costs.
- Data were collected via observation, checklists, and review of financial documents, analyzed using Excel and SPSS.
Main Results:
- Only 25.3% of the total cost incurred on laboratory tests was recovered.
- Approximately 12.32% of potential revenue was lost due to underpricing of services.
- 18 out of 20 tests were found to be underpriced, with a significant cost burden from free ART services.
Conclusions:
- A substantial discrepancy exists between the estimated cost and current pricing of laboratory tests, with 90% underpriced.
- Hospitals should reconsider test pricing to improve profitability and ensure financial sustainability.
- Increased revenue collection can support capacity building and enhance the quality of laboratory services.
Background:
The rapid and continuous growth of health care cost aggravates the frequently low priority and less attention given in financing laboratory services. The poorest countries have the highest out-of-pocket spending as a percentage of income. Higher charges might provide a greater potential for revenue. If fees raise quality sufficiently, it can enhance usage. Therefore, estimating the revenue generated from laboratory services could help in capacity building and improved quality service provision.
Methods:
Panel study design was used to determine revenue generated from clinical chemistry and hematology services at Tikur Anbessa Specialized Teaching Hospital, Addis Ababa, Ethiopia. Activity-Based Costing (ABC) model was used to determine the true cost of tests performed from October 2011 to December 2011 in the hospital. The principle of Activity-based Costing is that activities consume resources and activities consumed by services which incur the costs and hence service takes the cost of resources. All resources with costs are aggregated with the established casual relationships. The process maps designed was restructured in consultation with the senior staffs working and/or supervising the laboratory and pretested checklists were used for observation. Moreover, office documents, receipts and service bills were used while collecting data. The amount of revenue collected from services was compared with the cost of each subsequent test and the profitability or return on investment (ROI) of services was calculated. Data were collected, entered, cleaned, and analyzed using Microsoft Excel 2007 software program and Statistical Software Package for Social Sciences version 19 (SPSS). Paired sample t test was used to compare the price and cost of each test. P-value less than 0.05 were considered as statistically significant.
Result:
A total of 25,654 specimens were analyzed during 3 months of regular working hours. The total numbers of clinical chemistry and hematology tests performed during the study period were 45,959 (66.1 %) and 23,570 (33.9 %), respectively. Only 274, 386 (25.3 %) Ethiopian Birr (ETB) was recovered from the total cost of 1,086,008.09 ETB incurred on clinical chemistry and hematology laboratory tests. The result showed that, about 133,821 (12.32 %) ETB was revenue not collected from out-of-pocket payments that was paid for the services as a result of under pricing. The result showed that 18 out of 20 laboratory tests were under priced. The cost burden related to free Anti Retro-viral Therapy (ART) services was 285,979.82 (26.3 %) ETB.
Conclusion:
The cost per test estimated was significantly different to the existing price. About 90 % of the tests were under priced. This information could warn the hospital to reconsider resetting prices of these tests profitability ration less than 1. The revenue collected could help to build capacity, upscale quality, and sustainable service delivery.
